What MLM is

MLM (Multi Level Marketing, or Network Marketing) is a form of distribution in which the manufacturer employs a network of direct sales agents to sell and deliver its products or services to its customers.

In a conventional business, the marketing mix is comprised of the following seven features. The same seven features apply to MLM. The differences are shown in blue:

Identifying the needs of customers and identifying products and services to satisfy those needs

MLM companies need to conduct market research as well. The advantage is that, once established, their distributor networks become an effective market research resource when utilised properly. This helps keep costs to a minimum without loss of efficacy.

Ensuring that all aspects of the business, not just the products and services, will produce effective results.

MLM companies usually conduct more rigorous testing because public expectations of MLM products are unusually high, and are usually subject to much broader guarantees or warranties than other products. However, their testing can be more focused, because they don't have the same breadth of marketing and promotional activities and costs, so costs associated with testing are able to be reduced.

Ensuring that the pricing strategy will deliver value for money to consumers, and profit for the manufacturer/supplier.

MLM companies need to attend to this important feature as well. The rewards for their distributor networks come into this aspect of the mix.

The means by which the products/services and consumers are brought together at the same time and place.

This is the major point of difference between MLM and conventional systems. Instead of a complex system of wholesalers, warehouses, distribution centres, freight companies and retailers – with all the added costs at each point of handling – MLM companies normally deliver direct to either the distributor or the customer. The savings in infrastructure, multiple handling, storage and transport are huge. In many cases, delivery can be made by regular postal or parcel delivery services.

The highest-leverage selling process, in which consumers are pulled toward the products/services and their benefits.

Most MLM companies do very little advertising in comparison to more conventional companies, since word of mouth referral is the primary promotional medium. This represents enormous savings, which are normally channelled into network rewards.

The second-highest-leverage selling process, in which the products/services and their benefits are pushed toward consumers. This is usually associated with store layout, point-of-sale materials, literature, etc.

In MLM, visual merchandising is limited to the distributor’s personal presentation and the presentation materials and literature provided by the company. Once again, this saves significantly on costs.

The lowest-leverage selling process, which closes any gap left by advertising and visual merchandising. Crucially important for products or services which need to be demonstrated, or about which consumers need to be educated. Traditionally, sales people are employees or commission agents. Depending on the type of business, added costs are incurred in training, vehicles, support systems, travelling and accommodation costs and more.

In MLM, the distributor network trains itself and provides all of its own transport, etc. While companies often provide training, costs are minimised by economies of scale, by the use of audio-visual or electronic media, newsletters and magazines, etc. In comparison to conventional selling skills, MLM distributors require very little – most “selling” is limited to showing and telling. The products generally sell themselves, and word of mouth referral by customers is high.

The savings made by MLM companies over conventional distribution methods enable them to pass on higher rewards to their distributor networks. In addition to these savings, there’s a major benefit in this system for MLM companies… the relationships they enjoy with their distributor organisations.

There’s a synergy in this dynamic relationship that delivers extraordinary benefits to both parties, and ensures that they work together for their common good.

The reality is, though, that it’s in the area of distribution – bringing the products/services and consumers together at the same time and place – that MLM differs significantly from more conventional manufacturing and marketing businesses. Instead of a retail store or warehouse, products are delivered directly to the consumer.
  

Directory • What it is • What it isn’t • How MLM Works • Return on Investment
Brief History • MLM FAQs • Reward Plans • Present Trends • The Future
  

©1999 The Profit Clinic. All rights reserved. This page updated 24 August 2002.